(The following article by Chuck Sweeney was posted on the Rockford Register Star website on April 29.)
ROCKFORD, Ill. — The CEOs of North America’s six largest railroads are protesting Gov. Rod Blagojevich’s plan to charge them and other nonroad fuel users the same 21.5-cent-a-gallon tax paid by highway users.
Construction companies, manufacturers, retailers, barge companies and mining operations also would be affected. Railroads would bear the brunt of the new tax, said the leaders of Union Pacific, Burlington Northern Santa Fe, CSX, Norfolk Southern, Canadian National and Canadian Pacific lines in a letter to the governor.
Blagojevich wants the new tax as part of his plan to erase a budget deficit estimated at $1.7 billion to $1.9 billion. The governor estimates the new tax will raise $75 million a year for the general fund. The Legislature is considering the proposal.
The railroads say the tax would take money away from needed projects such as a massive, multibillion-dollar plan to streamline railroad switching and cargo operations in the Chicago area. They also say that applying a highway user tax to railroads is unfair because railroads own, maintain and pay property taxes on their rights of way.
“Your proposal would create a higher tax burden on railroads in actual dollars than the state of California, where our national western railroads conduct a higher volume of business, making Illinois perhaps the most burdensome state in which the railroads do business,” the CEOs said in the letter.
They said they are not aware of any other states that charge a fuel tax to nonroad users.
The railroads say the new tax would cost them $40 million a year, which they have to pass along to their customers.
As much as $20 million of that would be paid by Union Pacific, which in 2003 opened a $180 million cargo terminal in Rochelle.
Ken Wise, Rochelle’s economic development director, said the tax will hurt efforts to relieve highway congestion.
“Railroads are taking trucks off the road. If you raise the price of rail, you put trucks back on the road. You’re asking for more accidents, congestion. You’re wasting fuel, adding to pollution,” Wise said.
Tom Zapler, Union Pacific spokesman in Chicago, said the new tax “will impact our ability to compete with trucks. It will also affect our growth in Illinois, and impact our ability to invest capital funds in the state.”
The rail company will move its refueling operations out of the state if the new tax is passed, Zapler said. That would cost the state money because railroads pay Illinois’ 6.2-cent-a-gallon sales tax.
“It’s not our desire, but for $20 million a year you can build a lot of nice fuel facilities in Iowa, Indiana, Wisconsin. We’ll look at every way we can to fuel engines before they enter Illinois,” Zapler said.
The governor’s budget office is adamant that railroads and other nonroad fuel users have to pay more money for the privilege of doing business in Illinois, one of the nation’s key commerce centers.
“In a nutshell, Illinois is still working its way out of its worst fiscal crisis ever. If we’re going to continue to meet our commitment to K-12 education, Medicaid for seniors and families, and public safety, we need to make these kinds of tough choices,” said Becky Carroll, the governor’s budget spokeswoman.
Blagojevich, who has vowed not to raise sales or income taxes to balance the budget, believes that many big corporations do not pay their fair share of taxes. That’s why he is “closing loopholes that have benefited some companies because of their political ties in Springfield,” Carroll said.
The tax proposal’s fate in the Legislature is unclear. Blagojevich has shown no signs that he intends to back down, but House Speaker Michael Madigan, D-Chicago, told the Rockford Register Star last week that he is concerned with many aspects of Blagojevich’s 2005 budget, including proposed new fees and taxes on businesses. The speaker said he plans to hold hearings to better assess the impact on the state.
Sen. Brad Burzynski, R-Sycamore, represents the Rochelle area. He believes that Blagojevich will be forced to reconsider the tax.
“This has a devastating impact on railroads, the construction industry and, ultimately, everybody. Once they realize the widespread consequences of this tax, they’ll have to back away,” Burzynski said.
Call Chuck Sweeny at 815-987-1372 or e-mail csweeny@registerstartower.com
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Absolutely terrible.
That’s how Sue Grans of Rockford Blacktop describes Gov. Rod Blagojevich’s proposed 21.5-cent tax on nonhighway motor fuel. The company, one of the region’s largest heavy construction firms, uses the fuel for dozens of machines, from small Bobcats to multiton earthmovers.
Grans said businesses are already reeling from new taxes and fees the Blagojevich administration put in place over the past year. Blacktop’s state fees and taxes went from $572,000 in 2002 to more than $1.2 million last year.
And now this.
“It will hurt everybody,” she said.
Unlike taxes on fuel sold at gas stations, which pay for road improvements, the tax on fuel for nonroad equipment would go into the state’s general fund. “You’re taxing us, and we’re not getting the money back,” she said.
Given the state’s budget deficit, Glen Turpoff at the Northern Illinois Building Contractors Association can understand the governor’s quest to find ways to generate dollars. But when those measures affect the state’s competitive standing against surrounding states, the negatives outweigh the benefits.
“The key is, our association and many economists feel that we’re really on the threshold of some reasonable, improved economic conditions in our region and state. I guess that means it’s the wrong time to do anything precipitous,” he said.
The tax would likely lead to higher construction costs, which ultimately trickle down to the consumer, Grans and Turpoff said.